By Bob Mick, ARC Advisory Group
SAP launched NetWeaver several years ago, getting the company into the technology platform market. ARC interpreted that as taking more responsibility for integration and predicted that this would lead to SAP becoming heavily involved in manufacturing operations, even though getting deeply into Operations Management (OM) was probably not part of the original SAP plan. The revenue opportunities in OM were small in relative terms, and many in the industry believed that it would put their partner program in jeopardy. But then, OM and integration with ERP became essential for their customers’ business initiatives, and SAP started on an OM journey which is still playing out.
SAP’s OM Journey
SAP first acquired LightHammer, now SAP MII, addressing a large SAP whitespace - integration of on-site operation management applications with ERP. High initial sales of MII demonstrated that customers wanted such a capability from SAP. The next acquisition – FactoryLogic, now LPO – brought lean scheduling software to SAP, but more importantly, the acquisition gave SAP the people to address a customer demand for lean capabilities across a growing number of industries and business domains. The acquisition of Visiprise a few months ago addressed another big SAP operations whitespace (See ARCwire report: SAP Moves Deeper Into the Plant), providing “MES” capabilities for certain discrete industries. While some OM partners naturally have concerns, customers, especially their IT organizations, are more than receptive to SAP for help with their with their OM improvement programs. Interestingly, the most common response to this last acquisition was “what about the process industries”? In that direction, Performix and Tata Consultancy (TCS) demonstrated an integrated batch management solution for chemical industry customers at the recent ChemITC annual conference in Newtown Square, Pennsylvania.
For SAP, the challenge of helping customers with their OM initiatives just began with these acquisitions, because the OM market is highly fragmented. The discrete industry has always been that way, and the process industry seems to be getting more fragmented as both automation suppliers and enterprise suppliers expand into the space. SAP has a broad industry base and, to be successful in OM, SAP must develop a strategy to counter this trend.
One possible SAP strategy for addressing OM market fragmentation is to attempt to consolidate the OM market through additional acquisitions, possibly normalizing the acquired products later. This is likely to be very expensive and complex. Another SAP strategy is to deliver Visiprise and other OM functionality as a set of re-usable and extensible “services” (or some form of “platform”) and then get enough OM partners to use it to deliver more highly vertical solutions. SAP successfully took the second path for MII and is likely to do the same for “MES” functionality, especially in the context of their recently revealed business process-centric product focus.
SAP Process-Centric Initiatives – Is it the end of “ERP, CRM, PLM …”?
The big news at the recent industry analyst event in Nashville was how SAP has begun to transform their product planning from product segments (ERP, CRM SRM, PLM …) to a structured set of business processes. SAP has been talking about the need to do this for a couple of years and now have begun the transition internally. Eventually, this process-centric approach will permeate the entire SAP organization from product management to development, sales, and marketing. SAP told us that next year’s roadmaps will be about enhanced and new processes, and not about product segment (ERP, CRM …) features. So far SAP has identified about six high level customer initiatives that serve as umbrellas for detaining, building, testing, and delivering business processes. SAP manufacturing is involved in four: Responsive Supply Networks, Operational Excellence, High Performing Asset, and Products and Service Leadership. SAP has assigned managers and teams to each and they are working with customers to identify strategic end-to-end processes to refine and implement. Of course, end-to-end processes will cross traditional product segment boundaries and will eventually make those segments far less relevant.
For the time being, end-to-end processes will map onto existing SAP products, and in effect, this strategy sets SAP up to transform the underlying products into a service foundation that can be expanded and upgraded in smaller pieces. Over time this might finally eliminate the disruptive mega-upgrade projects. At least that would be a very good long term outcome. In the shorter term, defining a consistent set of strategic processes is an enabler for the next phase which is the transformation of the way SAP engages customers and does business. However, customers should get more involved now to help set business process priorities.
A Process Strategy Helps Address OM Market Fragmentation
SAP’s business process-centric strategy will provide the analytical techniques for addressing customer needs in the highly fragmented OM market. Industry differences are commonly cited as the reason for OM market fragmentation, and it makes sense that a process-centric analysis will help eliminate and prevent unnecessary industry flavors. Of course, the analysis will also identify and prioritize missing services as SAP addresses the company’s remaining OM white spaces.
SAP MII is already in place as the business process platform for operations, allowing SAP to start implementations as soon as customers have identified their key priorities. Visiprise and LPO will provide the OM services needed by most business processes in discrete manufacturing. Some of those services will even apply to process industries, but certainly more will be needed, providing requirements for development programs as well as further acquisitions.